IFAST Corporation - DBS Research 2017-10-30: Focus On Gaining Scale

IFAST Corporation - DBS Vickers 2017-10-30: Focus On Gaining Scale IFAST CORPORATION LTD. AIY.SI

IFAST Corporation - Focus On Gaining Scale

  • Strengthening investment platforms and positive market sentiment led to a significant improvement in 3Q17 results.
  • Fifth consecutive quarter of record level of assets under administration (AUA).
  • Raised FY17F AUA growth to 18%; maintain 8% for FY18F and expect another 5% growth for FY19F.
  • Maintain BUY, TP S$1.26.



Focus on building scale. 

  • iFAST has made significant progress in the last two to three years by broadening the range of investment products and services on its platforms, and laying the infrastructure to kick-start its business in China, a market it believes to be key in the future. The group is now a more integrated wealth management platform and this helps to strengthen its position as a key player in the wealth management industry.


More room for AUA growth. 

  • Despite AUA as at 30 September 2017 hitting a record high of S$7.16bn (+19.3% y-o-y), there is still room for growth as the current AUA level remains small relative to the size of the wealth management industry in Singapore and the other Asian markets it operates in.
  • Raised FY17F AUA growth to 18% from 15%; maintain 8% for FY18F and expect another 5% growth for FY19F. We have raised our AUA growth assumption for FY17F to 18%, after taking into consideration the 19.3% y-o-y growth in 9M2017.
  • We maintain 8% for FY18F and expect another 5% growth for FY19F. As such, we are now expecting revenue growth of 27%/10%/6% for FY17F/FY18F/FY19F, on the back of the broadening range and depth of investment products and services.


Valuation

  • Raised earnings forecasts by 3% for FY17F and FY18F, introduce FY19F earnings. Overall, we raised our earnings by 3% each for FY17F and FY18F. Maintain BUY; TP of S$1.26 based on Dividend Discount Model (DDM) valuation methodology, given that it is a cash-led business, supplemented by a relatively high dividend payout ratio of about 60%.


Key Risks to Our View

  • The securities and financial services industry is highly regulated and iFAST is subject to a variety of laws and regulations across the regions it operates in. iFAST’s operations are also vulnerable to market sentiment.



WHAT’S NEW


Strengthening investment platforms and positive market sentiment led to a significant improvement in 3Q17 profitability 


Results commentary - 3Q17 net profit surged 22.5% y-o-y, above expectations.

  • iFAST reported net profit of S$2.3m (+22.5% y-o-y, +5.2% qo-q) for 3Q2017. For 9M2017, net revenue increased 21.6% y-o-y to S$36.14m, while net profit rose 51.9% to S$6.53m.
  • 9M2017 net profit accounted for 81% of our FY17 earnings, above expectations. A third interim dividend of 0.75 Singapore cents per share for 3Q2017 was proposed, which is 10% higher than the dividend in 2Q2017 of 0.68 Singapore cents per share.

Fifth consecution quarter of record AUA: 

  • iFAST’s assets under administration (AUA) increased 19.3% y-o-y to hit a record high of S$7.16 bn as at 30 September 2017. All core markets registered strong growth.
  • Singapore’s AUA grew 14.3% y-o-y (+4.0% q-o-q) to a record high of S$4.92 bn. Growth in revenue was linked to increases in investment subscriptions into the various investment products distributed on the platform.

Hong Kong’s AUA grew 25.4% y-o-y (+6.5% q-o-q) to S$1.61 bn. 

  • Positive market sentiment and the increased range and depth of the products and services distributed, contributed to the significant improvement in AUA. Following a couple of years of difficult market conditions, the Hong Kong operation is now seeing good growth momentum.

Malaysia’s AUA grew 46.4% y-o-y (+9.2% q-o-q) to hit a record high of S$508.37m. 

  • The Malaysia operation has been working towards enhancing its range of investment products and services. With the introduction of bonds and roboadvisory portfolios in 2Q2017, the Malaysia operation has attracted more investors to open investment accounts in 3Q2017.

Singapore remains key contributor to earning; recovery in Hong Kong market. 

  • 3Q17 pretax profit for Singapore grew 12.1% to S$3.07m while Hong Kong’s pretax profit more than doubled to S$0.60m. Malaysia continued to register higher profit after breakeven two years ago. China is still loss-making as it remains in the start-up phase.

Ramping up operation in China. 

  • The China operation has signed up with more than 20 B2B partners (including Internet and financial services companies), which the group foresees could boost future AUA and sales numbers. The China operation has continuously increased the range of fund house partners and the funds carried on the platform. 
  • As at 30 September 2017, the China operation has signed up over 65 fund houses, with over 2,300 funds on its platform. In 3Q2017, the group acquired a minority stake in Beijing Financial Alliance Technology Co Ltd (BFAT). BFAT provides consultancy and advisory services to financial practitioners and financial institutions to enhance their competitiveness and expertise in the wealth management industry. With this partnership, the China operation is able to tap on BFAT’s network of financial planners, offering possible leads to boost its sales team as well as to sign up potential B2B companies.


Earnings and Recommendation 

  • Raised FY17F AUA growth to 18% from 15%; maintain 8% for FY18F and expect another 5% growth for FY19F. We have raised our AUA growth assumption for FY17F to 18%, after taking into consideration the 19.3% y-o-y growth in 9M2017. 
  • We maintain 8% for FY18F and expect another 5% growth for FY19F. As such, we are now expecting revenue growth of 27%/10%/6% for FY17F/FY18F/FY19F, on the back of the broadening range and depth of investment products and services. 
  • Maintain BUY; TP of S$1.26 based on the Dividend Discount Model (DDM) valuation methodology, given that it is a cash-led business, supplemented by a relatively high dividend payout ratio of about 60%.




Lee Keng LING DBS Vickers | Sue Lin LIM DBS Vickers | http://www.dbsvickers.com/ 2017-10-30
DBS Vickers SGX Stock Analyst Report BUY Maintain BUY 1.260 Same 1.260



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